TWA, Continental Discuss Link

Two of the nation’s weakest airlines--Trans World Airlines and Continental--said Thursday that they have begun exploring a merger.

The carriers could benefit from a merger, but their financial troubles may make such a transaction nearly impossible to complete, industry analysts said. Houston-based Continental is operating under Chapter 11 bankruptcy court protection, while Carl C. Icahn’s TWA plans to file for bankruptcy protection early next year.

“In this particular case, cash is the problem, and it’s hard to see how combining two cash-hungry carriers could make any improvements in that area,” said Lee Howard, president of Airline Economics, a Washington-based industry consulting firm.

Both TWA and Continental emphasized that discussions were very preliminary. Continental--which has explored a merger with other carriers, including Northwest and USAir--said it will continue to examine its options, including remaining independent.

“We will continue to examine every opportunity that makes sense,” spokesman Ned Walker said. “A merger with TWA is one of the several options we are looking at.”

Icahn, who initiated the merger talks, and Continental President Robert R. Ferguson III agreed at lunch Wednesday to begin preliminary discussions, Walker said. Officials of the airlines will now examine operating information to see if “a merger makes economic sense.”

Icahn, in a statement from his headquarters in Mt. Kisco, N.Y., said a TWA-Continental merger would be a “good fit,” but additional capital would be needed to complete it. The statement added that Icahn “might be willing to contribute from his own sources.”

This is not the first time Icahn has tried to find a merger partner for TWA. Last year, he failed to woo Pan American World Airways.

The financier said a merger with Continental would not change a reorganization of TWA planned for next year. As part of the reorganization, TWA, with the blessing of creditors, will file for Chapter 11 bankruptcy protection. The airline is expected to emerge from court protection by summer.

Both TWA and Continental are loaded down with debt--Continental alone owes more than $3 billion--and need substantial sums to modernize their aircraft and operations. But Continental’s large domestic network would be complemented by TWA’s international network, analysts said.

But in general, analysts are skeptical that TWA and Continental could pull off a merger that would result in the short-term benefits both airlines need.

“Most airline mergers have resulted in very few immediate successes,” said industry analyst Rose Ann Tortora of County NatWest Wood Mackenzie. “In many cases, mergers in the airline industry typically don’t live up to expectations.”